Dear,
I found some information from financial website regards the "
available-for-sale securities". I hope which will clear your doubt. pls read below:
Definition of Available for Sale Securities
An available for sale security is a debt or equity instrument that is a default classification for any investments that are not classified as one of the following types of securities:
- Trading securities. This classification is assigned to investments where the intent is to sell them in the short term to earn a profit.
- Held-to-maturity securities. This classification is assigned to investments where the intent is to hold them until the maturity date.
These classifications are mandated by Generally Accepted Accounting Principles for recording investments in the accounting records of a business.
Accounting for Available for Sale Securities
If you have investments in debt and equity securities that are classified as available-for-sale securities, and also if the equity securities have readily determinable fair values, then subsequently record their fair values in the balance sheet. You should exclude any unrealized holding gains and losses from earnings, and instead report them in other comprehensive income until they have been realized (i.e., by selling the securities).
If an available-for-sale security is being hedged in a fair value hedge, then recognize the related holding gain or loss in earnings during the period of the hedge.
Available for sale securities may be classified as current assets on the balance sheet if they are to be liquidated within one year, or as long-term assets if they are to be held for a longer period of time.
For example, Plasma Storage Devices buys $10,000 of equity securities, which it classifies as available-for-sale. After one year, the quoted market price of the securities drops the total investment value to $8,000. In the following year, the quoted market price of the securities increases the total investment value to $11,000, and Plasma then sells the equity securities.
Plasma records the decline in value in the first year with the following entry:
| | Debit | Credit |
| Loss on available-for-sale securities (recorded in other comprehensive income) | 2,000 | |
| Investments - Available-for-sale | | 2,000 |
Plasma records the increase in value in the second year, as well as the sale of the investment, with the following entries:
| | Debit | Credit |
| Investments- Available-for-sale | 3,000 | |
| Gain on available-for-sale securities | | 1,000 |
| Loss on available-for-sale securities (recorded in other comprehensive income) | | 2,000 |
| | Debit | Credit |
| Cash | 11,000 | |
| Investments - Available-for-sale | | 11,000 |
Can i have your full question please....!!!
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Habbib Mohamed
Accountant
Sharjah
United Arab Emirates
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Original Message:
Sent: 07-31-2014 08:06 PM
From: Mohamed Ahmed Abdel Mettal
Subject: part2
In a question it is required current ratio and acid test ratio
,, in that question there are information about available for sale securities in historical cost and fair value at year end
and the solution of this question, the available for sale securities are included in the numerator of the current and acid test ratio
why the solution assumed that available for sale securities are current assets however they can be accounted for long term assets or current assets based on the maturity date ?
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Mohamed Ahmed Abdel Mettal
Accountant
Oshena
Alexandria
Egypt
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